Gold and copper may have some similarities. Beyond the obvious (they’re both metals), both commodities are indicators of market sentiment: gold prices track appetite for risk, while copper prices are an indicator of manufacturing strength or weakness.
But as investments, these two metals satisfy two rather different investment strategies. Gold is a portfolio stabilizer, while copper is potential upside fuel. Let’s take a look at which of these two metals best suits a TSX portfolio right now.
Gold mining was one of the dominating themes in last year’s inaugural TSX 30. This safe-haven branch of Canadian natural resources generated some of the steepest share price appreciation in the preceding three years. Appetite for the yellow metal is still strong this year. However, whether it belongs in a portfolio depends largely on two factors.
First of all, investors need to check whether they already have gold exposure. Overexposure is one of the greatest risks to a buy-and-forget stock portfolio. The other thing to weigh is risk. Since gold is the classic safe-haven asset, its inclusion in a portfolio will help balance an investment vehicle stuffed with tech stocks, for example.
Copper is used for a multitude of engineering purposes due to its chemical properties. It’s a core component of many systems that are currently experiencing a boom in manufacturing, fueled by profound socio-economic shifts. Investors seeking upside from the electric vehicle theme have a strong play with copper stocks for this reason, as do green energy investors.
But another reason to get into copper stocks isn’t thematic — it’s value driven. Commodities like copper are undervalued, meaning that the markup is potentially attractive in the near to long term. After all, natural resources are limited — at the moment — to whatever reserves our planet can yield.
And speaking of yield, there are indeed some impressive dividends on offer in metals and mining stocks. Look at Lundin’s 2.4% payout, or Barrick Gold’s 1.2% yield. Barrick’s share price has appreciated 69% since this time last year. Lundin has grown 13% in the same period. And while that’s much lower than Barrick’s capital returns, it reflects copper’s undervaluation, while at the same time indicating a popular stock.
Again, at the end of the day, investors have to weigh their exposure. Pairing pure-play options in each commodity can bring the potential of higher returns as each metal enjoys its own rally. On the other side of the fence, though, are stocks that match both gold and copper in a single pick. Investors can choose whether to buy a stock more weighted towards gold, such as Barrick, or towards copper, such as Lundin.
Both of these two stocks pay dividends, making them solid choices for investors following a strict passive-income strategy. At the end of the day, though, Barrick is a top pick for a risk-laden portfolio, while Lundin brings the possibility of steep growth along with a richer dividend yield.
Undervalued commodities offer a wealth of investment opportunities. Here are 50 more stocks for the value-focused investor:
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